Medicare gets a better financial prognosis

By Glenn Ruffenach

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A long way from closing up shop.

The carping last week from the political left and right in the wake of the annual report from the Social Security and Medicare trustees might have overshadowed an interesting development: The report appears to contain some encouraging news about Medicare.

As MarketWatch reported last week, the trustees said Medicare’s hospital insurance trust fund would be exhausted in 2030, four years later than projected last year. If lawmakers do nothing, trustees said revenue coming into Medicare’s hospital fund would cover 85% of expected costs in 2030.

Democrats, not surprisingly, pointed to the Affordable Care Act as helping to slow the growth in Medicare spending, and they warned against changing the program. Conversely, Republicans argued that significant changes are needed (for example, the use of vouchers) to ensure Medicare’s long-term viability. In all, the program covers 52 million people.

First, Medicare appears to be doing a better job than the private sector when it comes to controlling costs. Medicare spending per capita rose 6.1% annually between 2000 and 2012 compared with 6.5% for private health insurance, Altman noted. Looking ahead, Medicare spending is projected to rise at a 4% per capita rate between 2013 and 2022 compared with 4.9% for private insurance.

“Medicare’s problem is less poor performance and more the challenge of meeting the needs of an aging society and seniors who have modest incomes to pay for their health care,” Altman said.

Second, the sky hasn’t fallen because of Obamacare. In other words: The Affordable Care Act is projected to cut $716 billion in expected increases to health-care providers and insurers between 2013 and 2022. Some observers predicted that the reduced payments would wreak havoc with the industry and beneficiaries. But to date, “there is no evidence that [these groups] have been adversely affected by the reductions,” Altman said.

In fact, he noted, enrollment has been growing in private Medicare Advantage plans, “which were hit by the most severe and controversial reductions, and the gains are projected to continue.”

Third, Washington has some additional breathing room. The four-year extension in the life of the trust fund means that “the country has a bit more time to hope for a more functional Congress that can figure out how best to finance Medicare for an aging population,” Altman said.

His conclusion: “With liberals and conservatives at odds over Medicare’s future direction and seniors such a strong voting group, it will be difficult to shift Medicare quickly in any direction. But there is good news for now in the trustees’ report.”

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Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.